Individuals and institutions may be permitted to invest more in inflation-indexed bonds. The Government and the Reserve Bank of India are working on measures to make these bonds, which so far have failed to attract retail investors, more attractive.
Indications are that the upper limit for investments in this instrument could be raised to Rs 25 lakh. Banks are also working towards introducing a new product to provide loans against this instrument.
Inflation-Indexed National Saving Securities provide hedging against inflation and are based on retail inflation. The bonds will be open for subscription till March 31.
At present, retail and high net worth individuals, Hindu undivided families, charitable institutions and universities can park between Rs 5,000 and 5 lakh in this Government-guaranteed product. “The suggestion (of increasing the maximum limit) has come to us. Some charitable institutions have suggested this. The RBI and the Government will jointly decide on this,” H.R.Khan, Deputy Governor, RBI, told reporters after meeting with North India-headquartered banks. The meeting was attended by chiefs of Punjab National Bank, Oriental Bank of Commerce, Punjab & Sind Bank and the Managing Director of State Bank of Patiala.
Khan urged bankers to promote this product and make available more forms at branches. “I had a meeting with bankers this morning. This CPI-linked inflation indexed certificate is a good product even as it stands now. Even existing features are quite good enough,” he said, adding that banks are committed to take it forward.
These bonds are designed to provide interest in two parts: a fixed rate of 1.5 per cent an annum and the second component equivalent to the inflation rate. The tenure of such a security is 10 years, but withdrawal is permitted after three years with some conditions. Investment is possible through SBI and its associate banks, nationalised banks, ICICI Bank, Axis Bank and HDFC Bank.
To promote this instrument, Oriental Bank of Commerce plans to soon launch a loan product that would take such inflation-indexed bonds as collateral.
“We are going to launch a new loan product with such a feature (allowing the inflation-indexed bonds as collateral) and take it to the board soon for approval,” S.L. Bansal, Chairman and Managing Director, Oriental Bank of Commerce, told Business Line after the meeting.
BANKERS’ VIEWS However, bankers did not agree to the contention that little effort was being made to promote the inflation-indexed bonds.
“It is not true that banks fear loss of term deposits if they are to promote this new product. The point is banks had very little time to focus on this new product. This new product was launched only in the last week of December and the time given to bankers was limited,” said a banker who attended the meeting.
PTI report adds: Meanwhile, in order to maintain stability in the debt market, the Reserve Bank may postpone its Rs 50,000-crore debt-switch programme to next fiscal, Khan said.
“Discussions are going on. It (debt switch not happening this year) is one possibility. There is probability that we may not do it. But who said we will not totally do it. This is one of the possibility that it may not happen this year but we are working on it,” he said here.
Under the debt switch plan of Rs 50,000 crore stated in the Budget 2013-14, the government announced a plan to buy short-dated debt, and in turn sell longer-dated bonds. This is aimed at spreading out redemptions of debt to later years.